IBM just published an extensive and insightful study about the global chief financial officer. The 2010 IBM Global CFO Study reveals the importance of the CFO role today and how a financial advisor must be broader and more strategic. It surveyed 1900+ CFOs worldwide from a cross section of enterprise sizes.
Today’s CFO must bring a broad understanding for a business, more than ever. Figure 1 shows the significant changes over the last 5 years on the importance of five company-wide activities. Notice the largest changes are around managing and mitigating risk (93% increase) and integrating information across the enterprise at 109% increase.
The study defines the CFOs into four groups:
- Value Integrators
- Disciplined Operators
- Constrained Advisors
It evaluates the effectiveness of all four in multiple subject matters and shows the gap or discrepancy between the different styles. For simplicity, we compare the two opposites, that of the Value Integrator and the Scorekeeper. The Scorekeeper is defined as a CFO focusing primarily on financial reporting, compliance and accounting with some budgeting and forecasting.
The Value Integrator is viewed as a CFO who continuously improves the finance efficiency and provides broad business insights to the business. They use technology to achieve greater data accuracy and develop better analytical tools for forecasting and scenario planning. Value Integrators understand the importance of managing enterprise risk and opportunities. This study points out that Value Integrators consistently outperform the other 3 groups and have provided significant security to businesses in this recent downturn.
Figure 2 shows the 5-year effect most significantly around EBITDA, where the difference is more than 20X. Value Integrators also outperform on the REVENUE and ROIC side, with 49% and 30%, respectively. These numbers are indeed noteworthy, the differences are truly impressive.
Multiple financial measures in this study are evaluated (see figure 3) and most impressively, Value Integrators achieved sustainability within their companies despite the economic recession. The study also evaluates enterprise-focused effectiveness and how expectations versus executions show a widening gap. One of the larger gaps (34%) is integration of information across enterprises. Today’s CFO must integrate information to understand which metrics are important and how often: weekly, daily or realtime. Proactive CEOs demand proactive data support from their financial team.
The two key capabilities associated with the outperformance of the Value Integrator are:
- Finance efficiency – provides business-relevant information and strong analytics based on good data
- Business Insight – enterprise focused and risk-based decision making support in a timely manner
Figure 4 shows how Value Integrators outperformed on all aspects of CFO responsibilities. Using Scorekeepers as the baseline, it is hard to avoid noticing the alarming difference between Scorekeepers and Value Integrators. Very importantly, combining the skill set of finance and enterprise knowledge has a multiplier effect and separates the Value Integrator by a large margin. Finance and risk are embedded in the company. Risk management and opportunities are in fact a big focus for a forward looking CFO. The support and overall contributions from a CFO to an enterprise are becoming increasingly strategic.
Clearly CFOs need to master and control all tactical aspects of finance. Historic data provides you with a historical view. A current view is represented by financial dashboards important to all decision-making. The forward looking view is vitally important for ongoing sustainability and growth of a business. Only with the understanding and support of all three can the CFO be truly pro-active in the decision-making process, scenario planning, forecasting and risk management and mitigation. The new, strategic CFO must possess the expertise and skill set in support of the CEO (figure 5).
The strong emphasis on tactical finance for the past 10 years is partly due to Sarbanes-Oxley. CFOs have continuously been transaction driven leaving a significant gap between actual and aspiration (see figure 6). CFOs continue to spend half their time around transactional processing. NSS thinks that the future mix should be:
Today’s economic landscape demands increased worldliness, intellect and knowledge from CEOs and CFOs. This combination gives the CFO more enterprise wide responsibilities as a trusted business partner who understands finance, connects the dots, brings micro- and macroeconomic knowledge and is market and industry savvy.
NSS is interested in your feedback and in how you have navigated through this recession. The 2010 IBM Global CFO Study shows powerful statistics in support of a Value Integrator as a CFO and why it is so important to drive your business in that direction. Give us a call to discuss further in how we may support you and your business with our value driven strategic CFO focus and strong ROI.
Rudi Scheiber-Kurtz, CEO
Next Stage Solutions, Inc.
The GPS of Finance